Quick review of stresses by asset class and Fed response

All asset classes are suffering from a lack of liquidity, wider bid-ask spreads, and limited buyers even after we account for the last two days of gains. In some cases, dislocations have moved away from extremes, but generally all markets are still at elevated stress levels. There is little reason to believe that we have turned the liquidity corner. 

The coronavirus shock is just starting to hit cash flows for companies which means downgrades, defaults, and restructuring will spill over to the financial markets. The Fed has already provided unprecedented sums of repo financing and Treasury purchases are at a feverish pace, but also just getting started with their broader programs. Commercial paper and corporate (non-Treasury) buying has yet to ramp up albeit the markets has to a degree responded.  

While most investors are aware of stresses in the markets they usually trade, it is important to be aware of stresses in other asset classes. For example, dollar stresses that are trying to be relieved through dollar swaps between the Fed and other central banks may be one of the most important markets to watch for global stability. A liquidity government scorecard, (we have a more detailed scorecard for internal use), is necessary to gain a better overview of market dynamics.